In Case You Were Wondering

Category: In Case You Were Wondering

Ramen Noodles, Bus Rides, and the World Series (?)

As you know (or should know), an “inferior” good is one where as my income increases, the demand for the good decreases. My in class examples of inferior goods are typically things like Ramen noodles, hot dogs, bus rides, and Irish potatoes back in the day.

In a stroke of WT-you-know-what, John Burger and Stephen Walters from Loyola University in Maryland add the World Series to the list.

You can’t be serious?

Indeed. And, here’s the abstract from their paper in Economic Letters:

World Series telecasts are now an inferior good. Income and the time cost of consumption interact so that a ten percent income increase reduces viewership by 1.8 million households. Increased availability of substitutes reduces ratings but increased drama improves them.

Now why would that be? Is it because the proliferation of substitutes over the years (more cable television options in November).

Look for this in Econ 300 next year.

Please Do Not Try this at Home, Especially My Home

In our continuing series on moral hazard I ask you this: what is the opportunity cost &/or reservation price of your off hand?

Consider this:

Thirty-four-year-old Gerald B. Hardin faces six charges, including mail fraud for a 2008 incident in Sumter County where a man’s hand was cut off with a pole saw.

Federal indictments state that Hardin and another person used a saw to intentionally cut off the hand of a third person in an insurance fraud scheme. The indictment says the men submitted claims under a homeowner’s insurance policy and three accidental death and dismemberment polices.

It says the men received more than $670,000.

So the guy with the missing hand must have a reservation price pretty far south of $670,000, as the perpetrators split the ill-gotten booty three ways. You have to hand it to these guys, though, coming up with this sleight-of-hand to outwit their insurance providers.

Well, almost

I have to ad-mitt that the article doesn’t say that it was his off-hand. But, on the other hand, I bet the payout for the dominant hand is higher, but that is just an off-the-cuff conjecture.

Could tiny organisms carried by house cats be creeping into our brains?

Crazy, awesome, completely plausible:

Jaroslav Flegr is no kook. And yet, for years, he suspected his mind had been taken over by parasites that had invaded his brain. So the prolific biologist took his science-fiction hunch into the lab. What he’s now discovering will startle you. Could tiny organisms carried by house cats be creeping into our brains, causing everything from car wrecks to schizophrenia? A biologist’s science- fiction hunch is gaining credence and shaping the emerging science of mind- controlling parasites.

In other words, Reading Period continues…

“Get Her Something Expensive and Useless”

It’s that time of year where we bid you Happy Holidays from the Economics profession.

Up first, we have a truly heroic figure, Joel Waldfogel, author of Scroogeonomics.*  I don’t know your preferences as well as you do, so whatever I give you is probably sub-optimal, unless you tell me exactly what you want.  And even then, wouldn’t you rather just have the cash anyway?  For those of you intermediate micro students, you know that kids prefer cash over any in-kind equivalent.

Kudos to Professor Waldfogel for willing to be “that guy.”

Speaking of Scrooge, was he really such a bad guy?  Not so, says Steven Landsburg. Let’s give it up for our annual Scrooge endorsement from this classic Slate piece:

In this whole world, there is nobody more generous than the miser–the man who could deplete the world’s resources but chooses not to. The only difference between miserliness and philanthropy is that the philanthropist serves a favored few while the miser spreads his largess far and wide.

If you build a house and refuse to buy a house, the rest of the world is one house richer. If you earn a dollar and refuse to spend a dollar, the rest of the world is one dollar richer–because you produced a dollar’s worth of goods and didn’t consume them.

Ah, I just feel all warm and fuzzy inside.

Moving on to The Atlantic, where we have “The Behavioral Economist’s Guide to Buying Presents.” Now this is some truly indispensable advice.  Like Waldfogel above, the money point is to just give money. But, for the true romantics who feel compelled to give a gift, the behavioralists recommend this:

Buying for a guy? Get him a gadget. Buying for a girl? Get her something expensive and useless.

The gadget I get.**  The expensive and useless? That’s from Geoffrey Miller’s, The Mating Mind.  Here’s a brief explanation of courtship:

The wastefulness of courtship is what makes it romantic. The wasteful dancing, the wasteful gift-giving, the wasteful conversation, the wasteful laughter, the wasteful foreplay, the wasteful adventures.  From the viewpoint of “survival of the fittest” the waste looks mad and pointless and maladaptive… However, from the viewpoint of fitness indicator theory, this waste is the most efficient and reliable way to discover someone’s fitness. Where you see conspicuous waste in nature, sexual choice has often been at work.

This presents something of a conundrum because “expensive and useless” seems to be at odds with Waldfogel’s hyper-utilitarian cold, hard cash suggestion.

So if you want to hedge your bets, give her Euro!

…

* The book is a follow up to the classic, “The Deadweight Loss of Christmas.”  Clearly, the book title Scroogonomics can be chalked up to the value-added of the publishing house.

**Conceptually, that is. I generally get ties and socks.

Black Friday View from Briggs 2nd

Mess with Gull and you get the Beak

I just looked out my window and saw a flock of seagulls (no, not that Flock of Seagulls) antagonizing one of the resident bald eagles.

I guess this isn’t all that unusual from the seagulls. Did you know:

Herring gulls dive-bomb predatory birds at a steep angle from above and behind, as they make a piercing shriek – “kaiow!”.

Some gulls also defecate or even vomit on the predator for good measure.

 My emphasis, as if any was needed.  Ick.

Click the pic for the full story and a bigger picture.

Via MR.

NPR Profiles Rand, Hayek, and Keynes

Following a couple of articles last week on how economists don’t do the “Big Think” anymore, NPR offers us up some stories on “thinkers who have had a lasting influence on economic policymakers.”

Who are these thinkers, you ask?  Well, first up is Ayn Rand, the notable “objectivist” author of the classics The Fountainhead and Atlas Shrugged.   Probably wouldn’t have been my first choice as a big economic thinker, but she is certainly still making headlines.  Ouch.

Next up for the NPR listeners is Austrian school economist, Frederich Hayek. Hayek is a would-be macro rapper, market proponent, and author of The Road to Serfdom — this term’s group read. Is it ironic that National Public Radio is profiling him?

Finally, NPR gives us John Maynard Keynes himself, another would-be macro rapper.  Keynes would no doubt agree that NPR is on to something with their profiles of influential economists:

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.

Keynes himself is hardly a defunct economist, his lasting influence prompted Richard Nixon’s lamentation, “We are all Keynsians now.” Indeed, the venerable General Theory of Employment, Interest, and Money spawned Keynsianism, New Keynsianism, Post Keynsianism, and a lot of other Keynsianisms. The links all seem good to me.

I’m giving this one the upstart “people you should know” tag.

So get to know them.

Daylight… Savings?

These days we don’t set back clocks very much any more, but instead our cell phones tell us that it must be the end of daylight saving time (although our cell phones do set us back quite a bit).

Dali clocks
Dali: The Persistence of Memory

The idea of daylight saving is famously attributed to Benjamin Franklin, but it was first introduced only about a hundred years ago. It has been policy in most of the US for about 50 years.

But does it really save energy? Surprisingly little research seems to have been done about that question. A 2008 NBER working paper considers the issue, taking advantage of a “natural experiment” in Indiana, where some counties used DST while others did not until 2006, when DST was sanctioned for all of the state. (Since it is often not possible to create lab experiments to resolve empirical questions in economics, we must rely on so-called “natural experiments” and a mysterious practice called “econometrics.”) Here is what the authors, Matthew J. Kotchen and Laura E. Grant, find:

The history of DST has been long and controversial. Throughout its implementation during World Wars I and II, the oil embargo of the 1970s, more consistent practice today, and recent extensions, the primary rationale for DST has always been the promotion of energy conservation. Nevertheless, there is surprisingly little evidence that DST actually saves energy. This paper takes advantage of a unique natural experiment in the state of Indiana to provide the first empirical estimates of DST effects on electricity consumption in the United States since the mid-1970s. The results are also the first-ever empirical estimates of DST’s overall effect.

Our main finding is that—contrary to the policy’s intent—DST results is an overall increase in residential electricity demand. Estimates of the overall increase in consumption are approximately 1 percent and highly statistically significant. We also find that the effect is not constant throughout the DST period: there is some evidence for an increase in electricity demand at the spring transition into DST, but the real increases come in the fall when DST appears to increase consumption between 2 and 4 percent. These findings are generally consistent with simulation results that point to a tradeoff between reducing demand for lighting and increasing demand for heating and cooling. According to the dates of DST practice prior to 2007, we estimate a cost to Indiana households of $9 million per year in increased electricity bills. Estimates of the social costs due to increased pollution emissions range from $1.7 to $5.5 million per year.

Addendum: Watch your step!

Less than Peak Perfomance

Following an earlier post on Daniel Yergin’s piece in the Wall Street Journal (promoting his new book), I came across James Hamilton‘s response to Yergin’s basic argument.  I use Hamilton as a primary source for teaching the resources piece of my Environmental Economics class, and he is an important player in the public debate.

Next up, we have a Michael Gilberson post that provides an overview of the issues and going through Hamilton’s critique of Yergin.  I find his response particularly useful because he gets at why peak oil might be an issue worth worrying about, and also has a section devoted to “supply and demand: boring and relevant.”  He prefaces his supply and demand discussion with this:

Hamilton draws attention to the slow rate of the supply response relative to demand growth. He is right, this is where the action is with respect to understanding recent oil market developments … and nothing about what he said depends upon whether the peak in world oil production did happen in 2005 or 2007, or will happen in 2011, or won’t happen until 2100 … and framing remarks as about peak oil distracts attention from the real issues.

Indeed.  For those of you who attended the LSB session on petroleum last year certainly know that people with money in the energy industry pay very close attention to supply and demand fundamentals.

The Appletown Coffee Experience

Sports Illustrated‘s Peter King gives a big thumbs up to downtown Appleton:

What a good coffee town Appleton, Wisc., is. In a two-block stretch of downtown on College Avenue (I once had night-before-the-game dinner with Bears linebacker Ron Rivera in an Italian place on this street), there are local espresso places — the trendy and modern Copper Rock, the homey and filled-with-locals Brewed Awakenings — and if those aren’t good enough for you, there’s a Starbucks on the corner. I can’t imagine there’s a better downtown coffee experience in a medium-sized, middle America city.

No mention of Gerardo’s stash on Briggs 2nd.

HT to our wonderful alumni network.

There is no such thing as a law in Economics?

In an anecdote recounted in some economics books, Vilfredo Pareto is giving a presentation, only to be interrupted repeatedly by an indignant Gustav von Schmoller with this provocative question: “But are there laws in economics?” The next day, Pareto, dressed like a beggar, approached Schmoller in the street. We turn to Organizations and Markets for the rest of the story:

“Please, sir,” Pareto said, “can you tell me where I can find a restaurant where you can eat for nothing?” “My dear man,” replied von Schmoller, “there are no such restaurants, but there is a place around the corner where you can have a good meal very cheaply.” “Ah,” said Pareto, laughing triumphantly, “so there are laws in economics!”

Could this be the origin of the famous “law” about free lunches? Not likely, based on a quick look at Wikipedia. The history there, confirmed by Google searches of contemporary books, does raise a different question, though: Had Pareto and Schmoller been at a conference in New Orleans rather than Geneva, would they have had to revise their notions of certain economic laws? Because in that case, Schmoller’s answer would have had to be something like: “Why, in just about any public house you can eat for nothing this time of day! Try the one around the corner, they serve oyster stew! All you need to do is buy a drink for fifteen cents.” If the drinks are not overpriced at 15 cents, is the lunch still free? Some sources suggest that the whole “free lunch” custom was, in fact, a relief program, a socially necessary outcome of high unemployment and poverty. This would merit (and require) more than a superficial Google search, so I’ll leave it as an exercise to the interested reader.

“English Too Easy for Hungarians”

That is the title of a WSJ blog piece that describes the latest efforts of the Hungarian government to save the country. I think they are finally on to something. English, they say, is so easy that one can hardly avoid learning it. So, why waste those precious early years on something trivial? Learn French instead, or some other proper language. It seems to me that there are several plausible reasons why they couldn’t go wrong with this policy. 1) The historical record is clear: Any country where English is spoken or was introduced as a language has suffered economically. 2) Clearly, wasting one’s younger years learning an easy language has a negative effect on one’s thinking. I can’t think of a single famous mathematician or scientist or philosopher whose native tongue was/is English. 3) Why learn English, when everybody in the world is doing it? In this new, globalized world, differentiation is the name of the game.

I couldn’t agree more that English is very easy. Not only do all native speakers achieve stunning eloquence by age 12, but even Hungarians master the language by… some age. At least the 10% of the population who speak it… sort of. As this video demonstrates, our (still relatively young) Prime Minister Viktor Orbán can spontaneously switch to English to respond to a question at a press conference. I am glad he didn’t waste his time perfecting his English, but focused on his pre-primeminister studies instead.

Russian used to be very popular compulsory in schools (even in my younger years). I am sure we could still find quite a few Russian teachers who were suddenly out of work 20 years ago. It’s a complicated language, requiring many hours of focused mental effort, and hardly anyone else in Europe speaks it (west of us…). Putting those Russian teachers back to work could be a win-win for everyone.

And they’re off… 2011 Commencement

The flowing robes, the grace... striking

We say farewell to our seniors with a repost from last year.

In our continuing attempt to understand the world around us, today we will talk about the tradition of wearing cap & gowns for graduation ceremonies.

Well, the first thing you need to know is that this dates back nearly 1000 years, and the academy is a notoriously conservative place. In the words of F.M. Conrford, in his advice to young academics, “Nothing should ever be done for the first time.”* The corollary is that once we get started on something, it’s tough getting us to stop.

With that in mind, Slate.com tackles the regalia question for us:

Standard fashion around 1100 and 1200 A.D. dictated long, flowing robes and hoods for warmth; the greater a person’s wealth, the higher the quality of the fabrics. This attire went out of style around the Renaissance. But sumptuary laws, often designed to prevent people from dressing above their class, kept academics (who were relatively low in the social hierarchy) in simple, unostentatious robes through the 16th century. Thereafter, academics and students at many universities wore robes for tradition’s sake. At Oxford, robes were de rigueur until the 1960s and are still required at graduation and during exams.

And, of course, the Americans played along:

When American universities sprang up in the 17th and 18th centuries, they adopted many Oxbridge academic traditions, including robe-wearing… Continue reading And they’re off… 2011 Commencement

Are you smarter than an 8th grader (from Moscow)?

There is more...

You can find out by giving these problems a try. For comparison, here is an 8th grade contest from Math League, which I am not familiar with at all.It definitely wins in the cool pictures category. I suppose you wouldn’t want 8th graders to get bored while solving math problems in a competition. (There is a nontrivial risk of boredom, actually.) To be fair, one can find much better math competition problems in the US, like this one, called Abacus. By a remarkable coincidence, “[t]he program is based on a printed journal for gifted students, originating in Hungary over 100 years ago.”

Math 300 Final Exam Help

Question: Prove that any sequence of the word “buffalo” of length n>1 is a valid English language sentence.

Proof (via Brad DeLong’s comments)

First, let n be odd. We start with n=3: “Buffalo buffalo buffalo”; that is, some buffalo do buffalo buffalo, i.e., some buffalo are buffaloed by buffalo. But of course the buffalo who are buffaloing may themselves be buffaloed by buffalo, so just as some cats that watch mice are chased by dogs, or as we say, cats dogs chase watch mice, buffalo that buffalo buffalo themselves buffalo buffalo, and we can say that buffalo buffalo buffalo buffalo buffalo. Anytime we have the noun buffalo, we can add the relative clause “who are buffaloed by buffalo”, or better, instead of the noun phrase “buffalo who are buffaloed by buffalo”, we may say simply “buffalo that buffalo buffalo”, then add the rest of the sentence, yielding “Buffalo that buffalo buffalo buffalo buffalo”, or even better, “Buffalo buffalo buffalo buffalo buffalo”. To a sentence consisting of n (odd) occurrences of the word, we can produce a sentence of n+2 occurrences.

Thus for any odd n, a sequence of n occurrences is a sentence.

But just as a dog that chases cats is a dog that chases, buffalo that buffalo some buffalo are buffalo that buffalo, so from one of our sequences of an odd number of occurrences, we can lop off the final direct object, producing a sequence of an even number of occurrences that is a grammatical sentence. For any n>1, odd or even, a sequence of n occurrences of “buffalo” is a grammatical English sentence!

Q.E.D.

Measurement Error

Edwin Heathcote of the Financial Times asks, why is it that cities voted “most liveable” are not cities where people actually want to go live?

The most recent surveys, from Monocle magazine, Forbes, Mercer and The Economist, concur: Vancouver, Vienna, Zurich, Geneva, Copenhagen and Munich dominate the top. What, you might ask, no New York? No London? No LA or HK? None of the cities that people seem to actually want to emigrate to, to set up businesses in? To be in? None of the wealthiest, flashiest, fastest or most beautiful cities? Nope. Americans in particular seem to get wound up by the lack of US cities in the top tier. The one that does make it is Pittsburgh. Which winds them up even more.

So I moved away from the most liveable city to be with you guys?  Yikes.

via Marginal Revolution.

The Trembling Hand and the Toilet Seat

Some people say that game theorists are afraid to tackle the tough questions.   I wonder what those people are saying now?

The Social Norm of Leaving the Toilet Seat Down: A Game Theoretic Analysis

By Hammad Siddiqi

The issue of whether the toilet seat should be left up or down after use seemingly generates a lot of passion among the parties concerned, however, scientific inquiries into the matter are almost non-existent…. In this paper, we internalize the cost of yelling and model the conflict as a non-cooperative game between two species, males and females.We find that the social norm of leaving the toilet seat down is inefficient. However, to our dismay, we also find that the social norm of always leaving the toilet seat down after use is not only a Nash equilibrium in pure strategies but is also trembling-hand perfect. So, we can complain all we like, but this norm is not likely to go away.

Of course, that’s hardly the last word on the subject.  Indeed, this piece with a starkly different conclusion found its way into Economic Inquiry.

By Jay Pil Choi

This paper develops an economic analysis of the toilet seat etiquette. I investigate whether there is any efficiency justification for the presumption that men should leave the toilet seat down after use. I find that the down rule is inefficient unless there is a large asymmetry in the inconvenience costs of shifting the position of the toilet seat across genders. I show that the selfish or the status quo rule that leaves the toilet seat in the position used dominates the down rule in a wide range of parameter spaces including the case where the inconvenience costs are the same.

I guess there’s nothing left to do but wait for the econometric analysis.

Discovering Kirzner, Week 1

We had a pretty good discussion today, especially on the distinction between the Schumpeterian and Kirznerian entrepreneurs (perhaps too much on Christiansen).  Ladies and gentlemen, the Kirznerian entrepreneur (emphasis his):

For me the function of the entrepreneur consists not of shifting the curves of cost or of revenues which face him, but of noticing that they have in fact shifted — Kirzner, Competition & Entrepreneurship, p. 81.

For further explication of the differences between Schumpeter and Kirzner (beyond what’s on pp. 79-81), see this piece by Don Boudreaux.

Former?

The Chicago Reader has a short piece on my brother, who wrangled the Mayorship from the incumbent in the Champaign election yesterday.  And wrangled is certainly the right word, as he has been campaigning tirelessly for the past six months.

Former Rocker Don Gerard Elected Mayor of Champaign

Don Gerard, a longtime fixture in Champaign-Urbana’s indie-rock scene, was elected mayor of Champaign yesterday. I haven’t seen or spoken to him in many years, but I remember Gerard, who played drums and bass in countless bands beginning in the mid-80s, as enthusiastic, energetic, and expertly sarcastic. His aesthetic sensibilities leaned toward punk and roots music, but his best-known group, the Moon Seven Times, was a 4AD-worshiping, goth-leaning outfit. He also played in the Farmboys, a band fronted by recording engineer Adam Schmitt; the Bowery Boys, fronted by Chicagoan Leroy Bach (Uptighty, Five Style, Wilco); and Steve Pride & His Blood Kin, which also included Jay Bennett. For a time he lived in the Champaign rock palace known as the Ten Shitty Guy House, which at one time or another housed members of the Didjits and Titanic Love Affair.

I must say, this is a bit surreal.

Causes of Demand Curve Shifts — Expected Price Changes

The first thing to remember about the law of  demand is “all else constant.” What we are holding constant includes expected future prices.  This from the Financial Times:

Chinese consumers, increasingly alarmed at the rising cost of living, cleared supermarket shelves this week of shampoos, soaps and detergents after state media said four consumer goods companies … would raise prices by between 5 per cent and 15 per cent.

Via Marginal Revolution.

InDirect Effects

A bit more on the potential NFL strike — my friend and colleague, Rodney Paul, is on NPR’s Marketplace talking about the dark days looming for DirecTV if owners and players fail to come to terms on a new labor agreement.

For those of you who don’t follow these sorts of things, DirecTV is a satellite television service that serves as the exclusive provider of the NFL Sunday Ticket, which has beaucoup benefits for the football fan. Specifically, the Sunday Ticket provides access to pretty much every NFL game, allowing for orgiastic quantities of football viewing.

Yet, I find this absolutely astonishing:

regardless of whether or not there is a season, the company (DirecTV) still has to make roughly $1 billion in payments (to the NFL).

Wow!  That seems like a lot of money.  But my guess is that it could have been even more.  To wit, I wonder if they didn’t consider the strike as a possibility, or they negotiated a lower price based on continuing payments to the NFL even in the event of a work stoppage?